A slowdown is not a collapse

Over the course of the past month, I cannot tell you how many people have asked me the same question: is the property market about to collapse?

Firstly, I am no Nostradamus, but I make the following observations, guided by history. The property market has never crashed when people have jobs. Fact.

Victoria’s unemployment rate is currently at the lowest level since records began in 1978; 4.1 per cent. Fact.

Property market collapses only occur when there are no buyers, and owners are “forced” to sell property for less than it was worth.

In the past three months, regional house prices in Victoria increased by 1.2 per cent and 15.2 per cent over the full 12 months.

Yes, this is a slowdown, but we are measuring against a whopping 21 per cent growth over the previous year!

Two weekends ago, auction clearance rates in regional Victoria were 65 per cent, which indicates that there are plenty of buyers in the market and property is still in demand.

To highlight the strength of the market in Geelong and surrounds, here is a cross-section of recent sales:

An industrial block of land in Fyansford, with a reserve of circa $5.5 million and sold for $6.5 million, setting a new benchmark in value for industrial land

A house in Stephen Street Newtown – $3.1 million

A well-located townhouse in Ocean Grove – $2.3 million

A grand five-bedroom house on Lake Wendouree in Ballarat – $2.4 million, and

A circa 1980s house in Coombes Road, Torquay – $2.9 million.

These are big numbers and all these properties have sold over the past month, and in spite of traditional “drag down” factors:

A federal election

The coldest winter in 50 years

Coming off the back of record growth figures for the previous 12 months, and

Doomsday publicity about interest rate rises, rapid inflation growth and supply shortages.

We might finish with a few facts on inflation. Australia sits 38th in the OECD nations for inflation growth at 5.1 per cent, which is led by Turkey at 70 per cent. Estonia is at 18.9 per cent.

The best barometer is probably New Zealand, which is 6.9 per cent.

Inflation is not really a problem if you can afford the debt and if interest rates get back to normal levels of about 5 per cent, which shouldn’t be an issue with our jobless rate of 4.1 per cent.

There are many people who believe that property is the perfect place to invest money to protect against inflation.

Holding cash or money in the bank is very susceptible to inflation, because it buys you less today than it did yesterday.

But a house is a house.

And it still provides the same living standard today as it did yesterday, but due to inflation you will need more money to buy it today than you did yesterday!

Finally, I will let you into a little property industry secret! As long as we can afford the debt, inflation actually works in favour of property values.